LA Times, By
Michael Hiltzik, November 6, 2011
 |
| Eminent economist Milton Friedman, who died in 2006, maintained that society would benefit as a whole only if managements focused on increasing profits “within the rules of the game,” which meant without deception or fraud. (Robert Durell, Los Angeles Times / June 22, 2006) |
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American
corporations plainly are smarting from the accusation that they've abandoned
their sense of social responsibility in pursuit of higher profits.
You can
tell that by the defensive indignation with which the business community has
greeted President Obama's rhetorical attacks on "millionaires and
billionaires." And by Bank of America's defensiveness in spinning the
cancellation of its $5 debit card fee as rather an act of consumer altruism.
("We have listened to our customers very closely," a spokesman said.)
Then there
are the CEO statements collected by Harvard Business Review for an online forum
titled The CEO's Role in Fixing the System, some of which carry the whiff of
the heebie-jeebies experienced by ancien regime dandies facing down a
torch-bearing mob of Jacobins.
For
example, Raymond Gilmartin, the former chairman and CEO of Merck, acknowledged
in the forum that corporate behavior in the economic slump had "deepened a widespread public distrust of corporations and capitalism." He proposed
that CEOs and boards start acting "as agents of society, rather than
shareholders." Starbucks founder Howard Schultz used the same forum to
promote his public campaign urging CEOs to step up job creation efforts across
the board.
There are
many reasons why corporate social responsibility is on the table these days.
One is that the sharp rise in business profits since the 2008 crash hasn't
produced a commensurately sharp rise in hiring. Occupy Wall Street and its coast-to-coast
offspring have catalyzed public disaffection with the gulf between the banking
industry's health and its millions of home foreclosures.
Philanthropy
experts say corporate giving has ticked up recently, possibly in response to
signs of public discontent. One in four major companies surveyed by the
Committee Encouraging Corporate Philanthropy, which has current or former top
executives from 22 major companies on its board, have increased their giving by
25% or more since 2007. (On the other hand, 21% of the surveyed companies cut
their giving by 25% or more.)
"We're
seeing a whole new approach in corporate responsibility," Charles Moore,
the committee's executive director, told me. Corporations are integrating
philanthropy into their business strategies, say, by supporting charitable
programs serving their suppliers, customers or markets — PepsiCo paying to
train the Mexican farmers who provide it with its corn syrup or Novartis
delivering health education in rural India to residents who might end up buying
its drugs.
The
question always is whether companies undertake these ventures because they're
the right thing to do or because they want to look altruistic for marketing
purposes. In other words, are improved profits a collateral benefit or the main
point?
Some might
say that it doesn't matter, as long as you end up with less penurious farmers
or healthier peasants. But the danger is that if it's seen chiefly as a PR
device, then corporate giving — currently a minuscule one-tenth of 1% ofrevenue among major corporations, according to the committee's latest survey —
will be first on the chopping block in economic downturns.
Moreover,
the giving-for-giving's-sake model always runs up against the notion that the
only constituency that counts in corporate management is the shareholder. The
modern dean of this school was the late eminent economist Milton Friedman, who
in a 1970 article belittled talk of corporate social responsibility as
"pure and unadulterated socialism."
Friedman
called corporate social responsibility a "fundamentally subversive
doctrine." He conceded that some putatively socially beneficial actions
such as improving local schools might have indirect benefits for a corporation
— make it easier to recruit employees, for instance — but for the most part he
scorned that rationale as "hypocritical window dressing."
Friedman
maintained that society would benefit as a whole only if managements focused on
increasing profits "within the rules of the game," which meant
without deception or fraud.
That would
provide customers with the best products and prices, workers with sustainable
employment, and shareholders with plenty of money to spend on their own choice
of good works, if they so wished. In other words, take care of profits, and the
free market will take care of everything else.
Friedman,
who died in 2006, wasn't shooting random mortar shells into the sky. He was
responding to a public debate on the corporation's role in society launched in
the late '60s that sounds very much like the direct forebear of Occupy Wall
Street.
Dissident
shareholders at Bank of America, AT&T and dozens of other companies freaked
out managements by questioning not their financial results but the "social
impact" of their activities, and disrupted annual meetings with demands
for proxy votes on such issues as their company's role in the Vietnam War, its
record on minority hiring and its contribution to pollution.
Today's
issues tilt more toward corporations' responsibility for the financial meltdown
(obviously the focus of Wall Street protesters) and how income inequality comes
from endowing CEOs with lavish pay while laying off rank-and-file employees by
the brigade and hammering flat the wages, health benefits and retirement plans
of those who are left.
That's just
one way the world has changed since Friedman fired his broadside. Corporations
today influence their communities and society at large in ways Friedman could
not have conceived, and of which he might not have approved.
It's not
only the multibillion-dollar lobbying war chests of major industries. What
would Friedman have made of the Supreme Court's 2010 Citizens United decision,
which granted rich corporations the same free speech rights as individuals —
including the right to make unlimited political contributions? Here's what he
wrote in that 1970 essay: "What does it mean to say that 'business' has
responsibilities? Only people can have responsibilities."
Friedman
argued that business leaders should keep their eyes on business and their hands
off socially responsible programs because they were more likely to be
"clear-headed" in the former and "muddle-headed" in the
latter.
Yet his
vision of the perfect market doesn't have much to do with our recent
experience, in which the clear-headed pursuit of short-term profits trashed the
world economy. Let's not forget that the flow of corporate wealth to CEOs and
shareholders has helped drive the middle class into income stagnation and debt,
impoverishing corporate America's customer base.
So much of
the debate today about corporate social responsibility misses the point.
Viewing the entirety of social responsibility as the pursuit of profit
"within the rules of the game" damaged millions of lives because the
rules of the game didn't leave room for a social conscience.
Social
conscience is what tells a CEO that long-term growth is more important than
short-term profit. But the former can be achieved only by serving, not merely
exploiting, your customer base. Friedman wasn't wrong, but his definition of
"social responsibility" was surely too narrow and his faith in the
market too naive. In this post-meltdown world we know better, don't we?
Michael
Hiltzik's column appears Sundays and Wednesdays. His latest book is "The New Deal: A Modern History." Reach him at mhiltzik@latimes.com, read past
columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow
@latimeshiltzik on Twitter.
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